Guest posts represent the views of the author only - not the views of Greenpeace which can be found on the Greenpeace blog.
In the past year, the energy security debate in the UK has focused on costs of generation technologies. But by doing this, politicians, public figures and reporters have perpetrated a message that low prices are key to effectively tackling climate change. In fact in the short term, the reverse may be the case – assuming measures are put in place to protect the least well off.
See also
For a different take Climate Resistance on the Carbon Floor Price
Politicians are powerless…
In the UK, we are exposed to some of the highest electricity wholesale prices in Europe (see light blue bars in graph). This means that the cost of generating electricity in the UK is higher than on mainland Europe. There is strong evidence suggesting this is associated with the high share of gas in our energy mix and our nuclear fleet . Despite this, the domestic price of electricity, which is the price households pay for electricity, is close to the European average. That’s mainly because we pay low tax rates on electricity (see orange and red bars in graph)
Figure of domestic electricity prices in Europe - Data from Eurostat (1st half 2012 data) except wholesale prices (2012) that are from anonymous source – if anyone has access to wholesale price data that can be shared publicly we would appreciate the information.
As negotiations for new nuclear generating facilities proceed, it has become abundantly clear that new nuclear power will not be cheap, quite the contrary. The story is not so different when it comes to gas, despite suggestions that fracking will bring costs down, the available evidence suggests this is will not be the case (check out the ‘It’s to expensive…’ section of this article). Why else would the new budget propose tax breaks for Shale gas exploration? In the renewables section offshore wind energy has not yet managed to reduce costs sufficiently to help curve these price trends.
In short, in the foreseeable future the wholesale price of electricity will rise and there is a strong consensus amongst leading energy analysts, the private sector and government bodies. Taxes are already so low that they are cannot come down further.
In the eyes of most, this paints the picture of a gloomy future but, though counter-intuitive, this is perhaps exactly the price signal that we need.
Behaviour change
It is abundantly clear that to tackle climate change and meet our carbon reduction targets, we need to reduce our consumption patterns.
During the recent Ecobuild exibition in the 'Making our cities better' conference Prof Peter Guthrie from the Centre for Sustainable Development at Cambridge University used the DECC’s pathways calculator to highlight that reducing the average temperature of homes during the winter to 16 degrees C would result in 9% carbon savings by 2050 which is equivalent to the total possible reduction that could be achieved from applying energy efficiency measures in our homes.
In line with the current debate on security of supply such behaviour change would result in 5% reduction in electricity demand around 2020 easily bridging the supposed ‘energy gap’ that is currently driving the government energy policy.
Unfortunately voluntary behaviour change is very difficult to foster in the current price environment. This is also true for the implementation of energy efficiency measures. To date all government initiatives have failed to achieve scale and the recent flagship ‘green deal’ does not look like it will fare better.
High prices, undesirable as they might be, are one of the surest ways of prompting this behaviour change. What would then be needed is government policy that will protect the energy poor by helping them introduce energy efficiency measures worthy of a 21st century developed nation, whilst helping shelter the rest of the population from the brunt of the cost of this transition.
For instance, some groups have proposed using the future revenues from the new Carbon floor price - currently opposed by most green NGOs - to fund such a scheme.
Technological innovation
Less well understood but equally important - high wholesale electricity prices also have a positive effect on technological innovation.
This is because the threshold at which new technologies become viable is lowered and fosters investment. Another well-established trend of technological innovation is that prices reduce over time. For large scale electricity production we are unavoidably talking in time frames over the decade mark, but ultimately, for viable technologies the production price of electricity will fall.
In a recent article Michael Liebreich, the chief executive of Bloomberg new energy finance gave a perfect example.
He describes how the reduction in price of solar PV between 2000 and 2010 made little impact on its commercial viability but that the same percentage reduction since 2010 is opening up a huge market for unsubsidised rooftop solar.
Higher wholesale prices would have seen the PV market open up earlier than 2010 whilst the opening of the market fosters further price reductions.
In essence the principle of carbon trading is an attempt to create the price signals that favours green-tech innovation over carbon heavy technologies - however market fluctuations are still a barrier to investment.
Even if its efficiency is debatable, the carbon floor price (opposed by Greenpeace and other green NGOs) is an attempt to rectify this and was one of the latest government initiatives.
High electricity prices today will prompt more efficient and responsible behaviour and carbon taxation, in one form or another, will further help the development of new clean technologies. In the long term costs of new technologies will reduce as they follow the well-trodden path of innovation helping reduce the wholesale price of electricity in 10 to 20 years’ time.
When we connect the dots high electricity prices in the foreseeable future could provide a pathway to prosperous low-carbon future.
